On March 29, 2017, Chief District Judge Lee Rosenthal of the United States District Court for the Southern District of Texas, Houston Division dismissed a putative class action against Plains All American Pipeline, a major national oil and gas pipeline operator, and its holding companies (collectively, “Plains Defendants”), as well as individual officer and director defendants of Plains All American Pipeline, L.P. (collectively, “Individual Defendants”), and financial institutions which acted as underwriters in the securities offerings at issue (collectively, “Underwriter Defendants”). In re Plains All American Pipeline, L.P. Sec. Litig., Case No. H:15-2404 (S.D.T.X. Mar. 29, 2017). Plaintiffs, individuals and institutional investors who purchased equity and debt instruments issued by entities affiliated with Plains All American Pipeline in seven different public offerings, brought claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 thereunder, and Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the “Securities Act”). The claims were brought after a May 2015 oil spill allegedly caused by a ruptured Plains pipeline that resulted in approximately 101,000 gallons of oil spilling into the Pacific Ocean. Plaintiffs alleged that, prior to and after the spill, the company falsely claimed to have a comprehensive, effective environmental and regulatory compliance program to prevent oil spills and, if such spills occurred, to quickly remediate the effects. The Court dismissed the Exchange Act claims, holding that the majority of the statements at issue were not “actionably misleading,” and that plaintiffs failed to allege facts giving rise to a strong inference of scienter. The Court also dismissed the Securities Act claims for lack of subject-matter jurisdiction as to all offerings except one, and dismissed the remaining Securities Act claims on the basis that they sounded in fraud and were subject to the same particularized pleading requirement as the Exchange Act allegations, and therefore were not actionably misleading for the same reasons.
Notably, in dismissing plaintiffs’ Securities Act claims, the Court addressed Underwriter Defendants’ argument that claims for certain offerings should be dismissed for lack of subject-matter jurisdiction because plaintiffs lacked standing to assert claims based on alleged misrepresentations that occurred in the offerings for securities they did not purchase. The Court declined to follow the Second Circuit Court of Appeals’ decision in NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145 (2d Cir. 2012), a case that denied a motion to dismiss an action brought by a shareholder who purchased securities in some, but not all, of a series of offerings. The Court disagreed with NECA on the ground that it was at odds with the prior rulings from the Supreme Court in Gratz v. Bollinger, 539 U.S. 244 (2003), Blum v. Yaretsky, 457 U.S. 991 (1982), and Lewis v. Casey, 518 U.S. 343 (1996). The Court noted that even if it did follow NECA, plaintiffs lacked standing because plaintiffs did not allege a sufficient identity of interests between the representative and the absent putative class members.
In considering the remaining claims, the Court divided the statements at issue into four topic categories: (1) integrity management, corrosion control of pipelines, and leak detection; (2) legal compliance; (3) spill-response capabilities; and (4) the size and scope of the spill. The Court held that plaintiffs’ allegations as to each category of alleged misstatements failed to plead a claim. The Court found that many of the statements were inactionable for various different reasons, including that: plaintiffs did not allege that certain statements were false or did not allege facts that rendered the statements false or misleading; many allegedly false statements were vague and general; and some statements were examples of corporate cheerleading, or truisms, which could not be the basis of a securities-fraud claim. The Court also found that allegations as to certain statements of opinion did not plead a claim under Omnicare. Regarding plaintiffs’ allegations as to statements made in the underwriting agreements, the Court declined to hold that such statements could not form the basis of an Exchange Act claim as a matter of law, but also found that plaintiffs had not made particularized allegations of falsity as to such statements.
Although the Court found that a handful of other alleged misstatements—such as a statement that the company performed scheduled maintenance on all of the pipelines and made repairs and replacements when necessary—potentially could be actionably misleading and material, the Court held that the allegations regarding these misstatements failed to plead scienter. For the statements by the company’s safety and security director who had been designated to speak on the company’s behalf, scienter was not adequately pled because the complaint contained “no allegations about what [he] knew and when he knew it.” Further, for statements on the company’s website that it performed regular maintenance, plaintiffs neither alleged that the statement was made or authorized by an officer with the requisite scienter, nor was it so “important and dramatic” that it must have been approved by corporate officials. The Court also found that plaintiffs’ more general allegations of scienter— including group-pleading allegations and allegations regarding defendants’ financial incentives—were insufficient. The Court did note, however, that defendants’ loss-causation arguments did not provide a separate sufficient basis to dismiss the case at that time.
Concerning the remaining Securities Act claims, the Court found that those claims, too, sounded in fraud and were subject to the same particularized pleading standard as the Exchange Act and Rule 10b-5 claims, and were inadequately pleaded for the same reasons. As a result, the Court dismissed the complaint in its entirety, without prejudice and with leave to amend.
Click here to view judgement.